The five-year outlook for the US construction industry remains positive but evolving risks due to the coronavirus pandemic and its effects on trade, travel, and consumer and business confidence is expected to negatively impact the industry this year.
Commercial construction sectors such as tourism, leisure and hospitality are likely to be the hardest hit in the early part of 2020, while other sectors such as residential, energy and transport, which rely heavily on foreign suppliers for building materials, will also be severely impacted.
The rapid spread of the coronavirus is affecting commodity prices, and disrupting global supply chains and firms’ operations, leading to shortages and rising costs of imported building materials, as well as reducing investment, and delaying projects and putting construction loans at risk.
As a result, GlobalData has revised down its forecast for US construction output growth to -1% in 2020 from the previous projection of 0.6%.
The construction industry in the US relies heavily on foreign suppliers and manufacturers of goods for building materials. Around half of the value of US imports consists of intermediate goods such as raw materials, machine parts, industrial inputs and capital equipment.
Almost 30% of all US building imports come from China as materials are generally less expensive, including everything from steel and stone to millworks, plumbing fittings and fixtures, and electrical and lighting equipment, and flooring tiles.
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However, the Chinese Government’s aggressive efforts to contain the virus have slowed and shut down factories in many of the country’s cities and provinces, leading to supply chain delays as production lines in China were at a standstill due to quarantined workers.
In February 2020, homebuilder Toll Brothers announced that the coronavirus outbreak in China had led to shortages of lighting fixtures and small appliances, forcing the company to delay the sales of 11 homes in California.
For contractors that rely heavily on foreign suppliers goods or materials this could mean higher material costs and slower project completions. It also means that they would be forced to find new suppliers and pay higher prices for materials if they cannot source what they expect from existing suppliers.
If the outbreak continues to spread rapidly, workforce issues could also arise. For instance, if public transportation comes to a halt, many construction workers would find it difficult or impossible to show for work on time or at all. And if school or child care facilities closed down, working parents would have no choice other than stay at home.
But if the situation worsens and construction sites shut down in certain areas and as expected some states are locked down and residents quarantined all construction in the areas would have to stop, with smaller construction companies having to lay off workers.